This case study is presented as a very brief overview of a project developed by nLogue Communications Pvt. Ltd., a company recently formed under the auspices of the TeNeT Group, which is comprised of faculty and researchers at Indian Institute of Technology (ITT) in Madras, India. Material facts and market data found in this case are intended to be neither exhaustive nor comprehensive.
Background and Context
Despite its comprising the second largest population on earth, with more than a billion people calling it home, India has barely 25 million telephones and fewer than 2 million Internet connections, and most of these are confined to a hundred of the largest cities. Bharat Sanchar Nigam Ltd. (BSNL), the principal state-owned telecom enterprise, loses money or barely manages to break even in providing service outside these major metropolitan areas, and thus far no private operators have any significant plans to venture away from them. This leaves the vast majority of India's expansive countryside with negligible connectivity.

The Cost of Connectivity

With the basic cost of providing conventional telephone and Internet connections at about Rs. 35,000 (USD 746.27) per line, an operator would require monthly revenue of about Rs. 1000 (USD 21.30) to break even (assuming 35% return covering interest on investment, depreciation and maintenance). As a monthly payment, this figure is affordable to barely 2-3% of Indian homes, and they are concentrated in large cities.

Cable as a Guide

In contrast to telephone connectivity issues, cable television connections have increased from zero barely a decade ago to about 50 million today. This expansion can be attributed to very low monthly subscription fees of Rs 60-150 (USD 1.28-3.20), an active second-hand market for low-cost televisions, and an explosive growth in the number of small-scale entrepreneurs, whose costs are far lower than that of the corporate sector. The upshot of all of these factors is that television and cable TV is affordable to nearly 60% of Indian homes, which represents not only large, metropolitan areas, but also small towns and rural areas.

Market Implications

The TeNeT Group and nLogue Communications recognize the implications of these various market indicators. As evidenced by the explosive growth of Cable TV into the countryside, rural Indians are eager to adapt new media technologies on a subscription basis. They are extremely sensitive to price, however, and the cost of providing service must be very low for operators to profit. Existing technologies for telephony and Internet access will not suffice if costs are to remain in line with market conditions. New technologies must therefore be developed-or existing technologies adapted-that will enable these services at a fraction of current costs.

Description of the Project

TeNeT created nLogue to address the strict demands of the current market by adapting technologies developed jointly by TeNeT, Midas Communication (P) Ltd., and Analog Devices, Inc. Specifically, the company has adapted Wireless Local Loop (WLL) technologies to specifications that address the economic realities of rural India.

The Technology: corDECT

corDECT, as this WLL technology is called, provides a telecommunications infrastructure at a fraction of the cost of standard systems, providing enough bandwidth (70 kbps, total) to allow for simultaneous voice and Internet connectivity.

The corDECT system consists of: A DECT Interface Unit (DIU): a fully redundant subscriber radio exchange with 2 OMC PC Consoles.

Compact Base Stations (CBS): provide the connection to the subscriber. This is connected to the DIU through 3 pairs of twisted pair copper wires. The DIU feeds both power and signal to the CBS. A DIU can be connected to up to 20 CBS.

Wall Set with Internet Port (WS-IP): the "end-user interface," these units have RJ-11 ports to connect to a standard telephone, fax machine, PCO, etc. as well as an RS 232 interface, allowing users to connect directly with a PC at a bit rate of 38.4 Kbps. The WS-IP currently supports simultaneous voice and up to 70kbps Internet access and can be as far as 10km away from the CBS, depending upon the availability of line of sight.

Relay Base Station (RBS): uses a two-hop DECT link to connect with WS-IPs up to 25 km away Per-line access costs for corDECT providers in sparsely populated areas are between Rs 13,000 (USD 277.19) and Rs 17,000 (USD 362.47). Additional technologies developed under the aegis of TeNeT, such as the Minnow ISP-in-a-box, further enable low cost Internet infrastructure and connectivity for system users.

These and other relevant technologies developed by ITT Madras are preferentially available to n-Logue at a relatively low cost, and they are ideally suited for deployment in small towns and rural areas.

corDECT has been employed successfully in a variety of developing economies, including Brazil and Argentina.

Implementation Through a Network of Partners

Rather than directly promoting and maintaining countless WLL networks, nLogue seeks to develop a network of local entrepreneurs to provide front-line implementation and services to local subscribers. These Local Service Partners (LSPs) will be in the business of setting up Access Centers in small towns and rural areas, which will provide simultaneous Internet and Telephony access to subscribers within a 30 km (19 mile) radius.

As part of their obligation to n-Logue, Local Service Partners are required to:

	Uniformity across diverse applications
	Provide after sales service to subscribers, satisfying their queries and offering product support
	Manage equipment at the Access Center
	Actively educate subscribers where needed and create awareness of available technologies
	Facilitate the building of Internet Communities within their subscriber base
	Identify opportunities for Commerce over local networks

In rural areas, subscribers will usually take the form of conveniently located kiosks in surrounding villages. In addition to local and long-distance telephone service, these village kiosks will offer residents information on commodity prices, land records, certificates, weddings, etc., all of which will is collected and stored at the Access Center.

Additional considerations for end-to-end service areas in small towns include frequency clearance and area coverage, depending upon the size and density of local populations. The basic model for service is the same as for rural areas.

Revenues

n-Logue will earn its revenues through Agency Fees, initial setup fees, paid by LSPs upon entering agreement with the company. Additionally, n-Logue will collect annual franchise fees from these local entrepreneurs. Additionally, the company will share subscription and other revenues collected by LSPs.

Initially, n-Logue Access Centers will generate the majority of their revenue through basic telecom service. Subscribers will have telephone service access for a nominal cost, and inter- and off-network communication will be available at rates charged by the Department of Telecommunications or private Basic Service Operators. As the market becomes more aware of the benefits of Internet connectivity and commerce, Access Centers will generate additional revenues.

Obstacles and Risks

Despite optimistic initial predictions about the spread of WLL technologies to fulfill the telecom needs of developing countries, factors ranging from overall cost, unanticipated line-of-sight issues, and sluggish bureaucracies have disappointed analysts. While networks have consistently proven themselves in the field and obstacles have diminished in the decade since WLL first entered the global market, there remain significant hurdles in the implementation of a WLL strategy.

Impact and Benefits

Beyond the obvious social benefits of basic telephone and Internet connectivity, the people of rural areas will potentially enjoy significant economic and financial benefit. Information from beyond the traditional reach of local markets and de facto monopolies will empower farmers and merchants, and the advent of new products and services will have a marked, positive impact on quality of life for local residents. By gaining access to telecom and Internet services, local governments and other institutions will be able to improve their efficiency and, therefore, their service level to local residents. Already, a variety of Internet initiatives beyond urban markets have proven dramatically successful in the lives of previously "unconnected" Indians.

Scalability

With such vast numbers of Indians currently without basic telephone or Internet connectivity, the market potential for the products and services offered by nLogue is significant. Given the arrangement of villages and coverage areas, up to 200 villages can be serviced by each Access Center. The company already has agreements in place to provide Telecom and Internet connectivity to every village and town of the districts of Madurai (Tamil Nadu), Dhar (MP), and Sikar (Rajasthan). It is also in the process of procuring similar agreements in Dehradoon (Uttaranchal), Adilabad (AP), Vijayanagaram (AP) and a variety of other districts. nLogue intends to expand steadily, connecting at least 1 million subscribers in three years. In the longer term, the company aims to establish a presence in every district across the subcontinent.

For more Information Contact:
Prof. Ashok Jhunjhunwala
Head, Department of Electrical Engineering
IIT Madras
Chennai, 600 036
Email: ashok@nimbus.ee.iitm.ernet.in, ashok@tenet.res.in

Thunderbird, AGSIM students based upon information supplied by Digital Partners and/or the ventures themselves wrote all cases. We have tried in all instances to highlight the most important points from the information provided. Please note that this document is being circulated without formal editing which will be done after the conference. We would like to acknowledge the following Thunderbird students for their work in preparing the cases: Dennis Hall, Srikanth Madala, Hammad Rizwan, Steen Simonsen, Ryan Timms, David Feige, and Stephen Frail.